You feel rich! The stock market is up and you might be wondering if now is the time to sell. Even if you don’t keep up with any financial news, you’ve likely heard how we’re in the longest running, bull market in US history. Your investment portfolio is looking pretty fat because you’ve purchased low and now it’s time to sell high- that’s how the old adage goes right? Or at the very least maybe you shouldn’t continue to invest because we’re at the peak, the top of the market, right? But then there is this thing called dollar cost averaging that you know deep down, is probably what you should be doing. Listen as we break it all down and discuss whether or not you should time the stock market.
And at the beginning of this episode we enjoyed an Über Quench’l by Heist Brewery which you can find and learn all about on Untappd. A huge thanks to Kevin in North Carolina for donating this beer and supporting the show! If you enjoyed this episode, be sure to subscribe and review us in Apple Podcasts, Castbox, or wherever you get your podcasts!
Hey fellas!! Keep up the great podcast. There is a 3rd option people forget about besides buying and selling. I’m continuing to put money into my 401k and IRA, but not investing. I’m parking it in a money market fund within the account. I’m keeping what I’ve previously invested in the market, but all new contributions get sidelined waiting for a reasonable correction. Why am I doing this? The Shiller PE ratio is at over 33. That means it takes $33 invested for $1 in earnings. Too rich for my blood, as the mean is right around 16. So, the market is twice as expensive as the historic average. I don’t care if it takes 1 year or 20, I’m not investing any NEW money into that costly and volatile of a market. I’m finding good deals in real estate in my area that are much more in my control and have a much higher ROI in the meantime.
Just my $.02. Cheers!
Thanks, Nate! I really appreciate your perspective. The one difficulty in doing that is…when will you actually put that money from the money market into stock investments? I have a feeling that it is going to be tough to figure out when you are ready to start investing that money instead of keeping it on the sidelines. I’m interested to hear your thoughts. And congrats on your real estate investing! I’m personally investing less in the stock market and more in real estate because I can get higher returns over time in buy and hold rental real estate no matter what the stock market does. There are awesome advantages to it especially if you know your local neighborhoods well and are ready to pounce when a deal pops up.
Hey Joel – Totally agree with you on the real estate. It’s not the same everywhere, but in my area (upper Midwest), I’ve been able to get some great deals. I buy and hold as well. Last one I bought, I’m getting 1.3% rents and we’ve had a 5-8% per year appreciation for a number of years which seems to be cooling off, but the 1.3% rents isn’t bad!
As for when to start putting that cash to work, I think I’ll start dollar-cost averaging when the Shiller PE ratio gets back into the 20s. There’s a lot of info at this link, but check out the “10 and 20 year forward annual returns from PE levels” charts…PE ratios and returns are very well correlated, and with current PE ratio in the 33’s…best case (historically) is -1 to 2.5% return before inflation….I’m certainly not hoping for another recession, but I just can’t justify investing at that inflated price. The other route I’m thinking is buying into specific sectors. Healthcare, technology, consumer goods and businesses that assist with education I think might be good options going forward, but I’m not too confident in picking stocks/sectors. It just doesn’t seem to work out for the average Joe. I’m too worried yet, as the cash on the sidelines is about 10% of our total stock investments, so I’m just awaiting opportunity. I’d like to hear your thoughts on the graphs! https://realinvestmentadvice.com/this-cycle-will-end-the-simple-math-of-forward-returns/